Opinion – Helio Beltrão: Obsession with subsidy and pricing

Less than three months after COP26 and the Brazilian government’s commitment to accelerate the reduction of greenhouse gas emissions, our politicians turn their backs on the environment and discuss subsidies and incentives for the consumption of fossil fuels. The official justification for reducing the prices of gasoline, diesel and cooking gas by law is to “lower inflation” and “help the people”.

Faria Lima, Leblon and the young elite may even buy this official narrative, but the average Brazilian suspects that politicians are only defending their own electoral interest, and that he will foot the bill.

Deputies, senators, governors, president, ministers are discussing this week at least four legislative proposals to schedule fuel ‘for the benefit of the people’. Be careful, it’s time to keep an eye on your wallet, as it could be about to be stolen.

International oil and energy prices have been rising for a variety of reasons –monetary stimuli, disruption in supply chains, geopolitical tension, etc. for continued operation of existing capacity. The supply of energy no longer grows in proportion to the demand.

There is no free lunch. As the world has decided to decarbonize, the price of carbon-based energy tends to rise, at least temporarily (as long as its demand does not keep up with the forced containment of supply).

The price increase discourages the use of carbon-intensive energy and makes cleaner alternatives possible. But there are consequences: the price of the license to emit a ton of carbon in the European Union has increased 3 times in the last year, limiting energy supply in the midst of an energy crisis. The poorest countries in Eastern Europe suffer most.

The European Union, squeezed by the mathematics of the energy transition, decided to revisit dogmas. It has recently started to label nuclear energy as a green solution, which emits no carbon and operates continuously. Scientists have argued that the (low) risks of nuclear waste accumulated since the 1950s are satisfactorily mitigated through deep repositories in places of high geological stability (Finnish, American, French projects).

The new EU attitude contrasts with the environmental opposite of our politicians, whose first move last year was to try to force Petrobras to sell fuel below the international price. The action would have caused shortages, as it would make the 20% of the fuel market served by importers unfeasible (with no guarantee of better prices at the pumps).

The idea now is to take a chunk of the Union’s revenue (already very deficient) to finance the price reduction by decree and distribute benefits to specific interests such as truck drivers.

The Kamikaze PECs under discussion reduce the Union’s revenue by between R$70 billion and R$100 billion per year; everything outside the ceiling, the Fiscal Responsibility Law, the golden rule. Another bill, PL 1,472, proposes to institute an export tax on oil to subsidize the artificial reduction of fossil fuel prices.

The obsession with fixing prices and irresponsibly playing with government accounts negatively impacts Brazil’s perceived risk to investors, which in turn causes the dollar to rise and the consequent increase in fuel prices due to import parity! In other words, populism does the damage and Brazilians pay the bill. Until when?